Production
Work out what each production run really costs: materials, labour, machines and expenses, then share the month’s bills over what was made.
What is production costing?
When you make a product from other items — a kit from parts, a bottled liquid from raw materials, a meal from ingredients — production costing tells you what each run really cost. It is part of Inventory Tracking, and it adds four things to Item Assembling:
- Job orders — produce against a customer's sales order and see how much of each item is made.
- The full direct cost on every production entry — the materials actually used (compared with the bill of materials), the hours of your staff and outside labour, the hours of each machine, and expenses such as electricity.
- Month-end expense distribution — bills that come for the whole factory (rent, power, branding…) are shared over the month's production, either into the stock cost or only into reports.
- Production reports — cost sheet, wastage, yield, labour, machine use, expense shares, unit cost trend and job order status.
Production costing in 3 minutes
This video will show: the Production menu, a job order, a production entry with its cost summary, a month-end rent distribution, and the cost sheet.
Key terms
| Term | Meaning | Example |
|---|---|---|
| Production entry | One production run, entered in Item Assembling: the finished item and quantity made, and everything used to make it | 100 × KIT-1 on 14 Oct |
| Bill of materials (BOM) | The item's recipe: the components and quantities for one unit. It fills the materials of a production entry | KIT-1 = 2 × PART-A + 1 × PART-B |
| Job order | A production order made from a customer's sales order. Its items are the sales order's items; its status is worked out from what was produced | Job for SO-123: KIT-1 ordered 100 |
| Absorbed cost | Labour and machine cost moved into the value of the stock produced. When the entry is posted, the finished item's stock is debited and a labour absorbed / machine absorbed account is credited; the wages and depreciation themselves are booked as usual by payroll and fixed assets | 7.5 h × 23.08 = 173.08 labour absorbed |
| Book cost | What goes into the stock value: materials + labour + machines + expenses on the entry | 1,693.33 for 100 kits = 16.9333 each |
| Full cost | Book cost plus the shares of month-end expenses distributed to the entry, including the shares kept out of stock (report only). Used for pricing and management | 1,693.33 + 250 rent + 200 branding = 2,143.33 |
| Expense type | A kind of period expense with the accounts it is booked to, a default basis and a default treatment | RENT: factory rent account |
| Distribution | A document that shares one expense type's bill for a period over that period's posted production entries | October rent 1,000 over 2 entries |
| Treatment | Add to stock cost (the share raises the item's cost; the part already sold goes to cost of sales) or Report only (nothing is posted; the share shows in full cost only) | Rent → Add to stock cost; branding → Report only |
| Basis | How a bill is shared between entries: output quantity, machine hours, labour hours, material value, production cost, or a typed share | By output: 100 kits get 25 % of 400 |
The menu
All screens are under Production in the side menu:
| Group | Screen | Use it to |
|---|---|---|
| Production | Job Orders | Produce against a sales order and follow its progress |
| Item Assembling | Enter production entries: materials, labour, machines, expenses and the cost summary | |
| Machines | Set up machines (work centres) and their rate per hour | |
| Expense Types | Define period expenses (rent, power, branding…) and their accounts | |
| Production Settings | The accounts labour and machine cost are credited to, and the standard hours per month | |
| Expense Distribution | Share a period's bill over the production entries | |
| Production Reports | Eight reports on cost, usage and progress | |
| Labour Cost | Pay and rate per hour of employees and temporary staff; shown only to user groups that may see labour cost (see Setup) | |
| Inventory Tracking → Transactions | Batch Allocation | Post production entries (document type Item assembling) |
How it fits your daily work
| # | Step | Where | What happens |
|---|---|---|---|
| 1 | A customer orders | Sales Order screen | The sales order lists the items and quantities |
| 2 | Make a job order | Production → Job Orders | Pick the sales order; its items appear with Ordered / Produced / Remaining |
| 3 | Produce | Production → Item Assembling | Click Produce on the job, or open Item Assembling directly. Enter the materials used, labour, machines and expenses. Save. |
| 4 | Post | Transactions → Batch Allocation | Components leave stock, the finished item comes in at its book cost, and one voucher records it |
| 5 | Month end | Production → Expense Distribution | Share each common bill (rent, power, branding…) over the month's posted entries |
| 6 | Review | Production → Production Reports | Cost per entry, wastage, yield, labour, machine use, unit cost trend, job progress |
A job order is optional: a production entry can also be made without one.
Why two costs: book cost and full cost
Accounting rules for stock (IAS 2, used in Saudi Arabia and most countries) allow only production costs in the value of stock: materials, direct labour, and factory overheads such as factory rent, machine depreciation and factory power. Administration and selling costs — head office, branding, marketing — may not be put into stock value; they are expenses of the period.
Management still wants to see them per unit for pricing. So each production entry has:
- Book cost — the stock value. It is posted, and it sets the item's average cost.
- Full cost — book cost plus every share distributed later, including the report-only shares (branding, admin). It appears on the cost summary and the reports, never in the accounts.
Batches
Production entries work with Inventory Tracking batches: the finished item can go into a batch with its expiry date, and components can be taken from chosen batches. See Batch Allocation → Batches in Item Assembling.